Question

Dreilling Company borrowed $500,500 on January 1, 2017, but issuing a $500,000, 5% mortgage note payable. The terms call for annual install payments of $45,500 on December 31.

Prepare the journal entries to record the mortgage loan and the first two installment payments.

Indicate the amount of mortgage note payable to be reported as a current liability and as a long term liability at December 31, 2017.

Answer 1

SOLUTION:

PART-1
Cash	500,500
Mortgage Payable		500,500
PART-2
Interest Expense (500,500 * 2.5%)	12512.50
Mortgage Payable	32987.50
Cash		45,500
Interest Expense (500,500 - 32,988)*2.5%	11687.80
Mortgage Payable	33812.20
Cash		45,500
Interest Expense (500,500 -32,987.50 - 33812.2)*2.5%	10842.5075
Mortgage Payable	34657.4925
Cash		45,500
PART-3)
Current (Mortgage) Liability
45,500 - {(500,500 - 32987.50 - 33812.20) * 2.5%}	34,657.49
45,500 - {(500,500 - 32987.50 - 33812.20 - 34,657.49) * 2.5%}	35,523.90
	70,181.39
Long term
500,500 - 32987.50 - 33812.20 - 34,657.49 - 35,523.90	363,518.91